Employees Exiting with Trade Secrets May Open the Door for Civil Conspiracy Claim

A mass exodus of employees from a company often results in the employees joining a competitor or starting up a competing business. Often the employees do not leave empty handed, and involve a concerted effort to use the company’s confidential or proprietary information to obtain an unfair competitive advantage. Such acts may give rise to a common law claim of civil conspiracy.

To be successful on a civil conspiracy claim, a plaintiff must usuallys show that two or more persons engaged in an unlawful act done in furtherance of the conspiracy and some form of actual damages. The court will require that there be some underlying wrongful act, such as a tort or a statutory violation. In Delaware, a breach of contract is not an underlying wrong that can give rise to a civil conspiracy claim.

One of the advantages of a civil conspiracy claim is it provides recourse against parties who may not have participated in the initial wrongful act, but nonetheless participated in the conspiracy. This is significant since each conspirator is jointly and severally liable for the acts of co-conspirators committed in furtherance of the conspiracy.

Civil conspiracy claims have led to the award of injunctive relief in the Court of Chancery. Most recently, in Zrii, LLC v. Wellness Acquisition Group, Inc., the Court of Chancery awarded a preliminary injunction against various individuals after finding a their former employer had a reasonable likelihood of success in proving the existence of an unlawful act in furtherance of the alleged conspiracy.

In Zrii, the defendants had conducted secret meetings without the company’s President while still employed by it, breaking into Zrii headquarters in Utah and stealing confidential and proprietary information, destroying documents, and chancing computer network accounts to prevent Zrii’s President from accessing the business’s network. After engaging in this conduct, the defendants attempted to force Zrii’s President to sell the business to them. When he refused, the defendants left their employment with Zrii, taking most of the employees with them, and moved en mass to another employer.

In addressing the request for injunctive relief, the Court focused on Zrii’s claim for civil conspiracy, which alleged a conspiracy to misappropriate trade secrets and breach the non-competition provisions of Defendants’ employment contracts, among other things. The Court noted that the list of Zrii’s sales representatives likely constituted a trade secret because Zrii had taken adequate steps to protect the confidentiality of the list, and the names and contact information of the sales representatives would not be easily duplicated, even though publicly available.

After concluding that Zrii had a likelihood of success on the merits, and would likely suffer irreparable harm in terms of additional lost clients, the Court awarded Zrii a three-month injunction to preserve the status quo prior to defendants’ allegedly unlawful actions. The Court also noted that their was evidence that Zrii suffered real damages as a result the defendants’ conduct. Zrii, LLC v. Wellness Acquisition Group, Inc.,
No. 4374-VCP, 2009 Del. Ch. LEXIS 167 (Sept. 21, 2009)

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